TREASURIES-Two-year Treasury yields pull away from five-month lows

LONDON, March 11 (Reuters) - U.S. Treasury yields steadied on Tuesday, pulling away from five-month lows hit earlier in the session, as signs of risk appetite returned to world markets a day after a sharp selloff on Wall Street.

The two-year Treasury yield was trading at around 3.89% in London trade, little changed on the day and up from as low as a 3.83% hit during Asian hours.

Ten-year yields were also little changed at around 4.21% .

On Monday, two-year yields fell around 10 basis points in their biggest daily drop since September after U.S. President Donald Trump declined to rule out a recession as a result of his tariff policies.

Wall Street stocks also suffered heavy losses on Monday but in a sign that sentiment was recovering, equity futures pointed to gains for U.S. stocks on Tuesday and that in turn took the shine off safe-haven bonds.

"It's challenging to decipher Trump's policy and its impact on the Treasury market," said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors.

Maxia is currently neutral on Treasuries, but said his view could change "if we have strong evidence of a significant weakening of the U.S. economy. We have just seen some alarm bells as of now."

But in one worrying sign for the bond market, a measure of default risk was creeping higher again.

Spreads on U.S. government one-year credit default swaps (CDS) - market-based gauges of the risk of a default - widened to 43 bps on Monday and held at that level on Tuesday. This is widest level since Nov.5., the day of the U.S. election.

(Reporting by Dhara Ranasinghe in London and Stefano Rebaudo in Milan; editing by Christina Fincher)